Posted by: Josh Lehner | October 17, 2016

The Great Recession Didn’t Kill the Business Cycle

There is a clear distinction between the underlying trend and the cycle around the trend. Just take the 2000s as an example. The cycle component was, unfortunately, very evident given the two recessions, even as the underlying economic trends were flat or down for the most part. While I don’t believe most observers really think the business cycle is dead, I do think there is a segment that believes we experienced a really big step down in the Great Recession and haven’t or won’t see any real progress.

Our office’s view is that there is a natural ordering of events over the cycle. We generally know what portion is coming next, even if we can struggle with the pesky little issue of timing the events. The good news is that the economy really is getting to the point where improvements are being seen, or will be soon, in some deeper measures of economic well-being. The difference this time was the severity of the Great Recession and the amount of recovery needed.

A stylized ordering of the cycle goes something like the following. During a recession job losses ensue. In the early recovery job growth returns but wage growth lags as the pool of candidates greatly outnumbers available jobs. As the labor market gets tighter, wages start to rise. As employment and wages rise, household incomes for those in the middle and bottom part of the distribution also increase. Then we start to see poverty rates and needs-based caseloads begin to fall. After a period at or near full employment, the cycle starts again. Measuring progress on poverty and caseloads, to a certain extent, is about how long the economy remains at or near full employment, or how long before the next recession begins.

Of course, this stylized ordering leaves a lot of issues out. In particular these include structural changes and the trends facing different segments of the population or regions of the state. However, the larger point still stands.

On Wednesday I am presenting at the Multifamily NW’s Apartment Report breakfast where I will be highlighting some of these broader improvements seen in the Portland region. I will post a summary of that here on the blog as well.

It should be said that we are seeing these improvements first and foremost in the Portland metro area, while improvements are considerably smaller to date in the rest of the state. I think, and will detail this a bit further, that this is mostly a timing issue. Portland’s economy, like large metros across the nation, returned to growth first and has seen strong gains since 2010 or 2011. The state’s other urban areas and much of rural Oregon spent around three years at the bottom of the Great Recession. They stopped losing jobs, but saw no net growth for years. However, job gains have returned in recent years. The state’s second tier metros are now surging. Rural Oregon job growth is now back to rates seen during the housing boom. However rural Oregon has yet to regain all of its recessionary lost jobs and growth rates are lower than those in urban Oregon.

All told, the 2015 American Community Survey data brought good news. Given everything we know today, the 2016 data, when released a year from now, will show another big step in the right direction. Of course further progress remains to get back to 2007 poverty rates in much of the state, let alone 1999 or 2000 rates. That said, the economy is getting to the point where at least some of these improvements become reality and not just the next phase of the business cycle.


Responses

  1. “The good news is that the economy really is getting to the point where improvements are being seen, or will be soon, in some deeper measures of economic well-being.”

    Sounds good. I expect vigor if FRED TDSP starts going up again as it did in 1994.

  2. […] the strong labor market and wage gains are pulling workers and families out of poverty today. The business cycle is not dead. These improvements are seen among households in deep poverty, those with incomes less than half […]

  3. […] albeit to varying degrees. The state as a whole is approaching full employment. Given that the business cycle isn’t dead, we are also starting to see progress made on deeper measures of economic well-being, households […]

  4. […] albeit to varying degrees. The state as a whole is approaching full employment. Given that the business cycle isn’t dead, we are also starting to see progress made on deeper measures of economic well-being, households […]


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